Domestic brokerage house Prabhudas Lilladher (PL) said that pizza chains could potentially rebound quicker than burger chains. In its recent update on consumer sector, it highlighted sluggish demand in the quick service restaurants (QSRs) sector due to downtrading and intense competition from regional players and smaller chains.
"Burgers performed strongly through the first half of FY24, although this trend began with the pizza category which was under extreme pressure. Westlife Food World and Burger King saw good same-store sales growth through 1HFY24, but Jubilant Food Works and Pizza Hut saw negative growth. But beginning in the second half of FY24, burger companies began to suffer pressure from a slowing demand, geopolitical issues, and potential competition (from newcomers and other cuisines)," it pointed out.
PL believes this is just the beginning. With increasing competition from local chains, the pressure in the burger category is likely to persist. Consequently, the possibility of burgers following the trend seen in pizza chains seems increasingly likely, it said.
As per the brokerage, the number of pizza outlets among the top three brands doubled from 1,654 to 3,331, while major burger chains increased by only 50 percent from 789 to 1,197 during FY20-24. This growth trajectory has impacted industry growth rates and profitability. PL forecasts a 38 percent rise in the number of burger outlets among the top players from FY24 to FY26, compared to an 18 percent increase in pizza outlets.
While burger chains are yet to fully experience the competitive pressures, pizza chains may be approaching the bottom of their economic downturn, noted the brokerage. It anticipates that pizza players will recover with mid-single-digit same-store sales growth (SSSG), faster than burger companies.
Among stocks, PL recommends a Hold call on Jubilant FoodWorks with a target price of ₹490 (13 percent downside) and Accumulate on Westlife Foodworld with a target price of ₹817 (3 percent downside).
The Quick Service Restaurant sector in India has traditionally been dominated by multinational giants like McDonald’s, Domino’s, Burger King, and Pizza Hut, which have established strong brand loyalty over the years. Despite their success, these brands only penetrate around 425 cities in India, leaving ample room for growth in a country with a large and aspirational youth population, noted PL.
It further highlighted that local competition is intensifying within the QSR space, as many homegrown brands ambitiously expand nationally, offering burgers and pizzas with unique flavors at competitive prices. These brands benefit from lower costs associated with localised product development, establishing regional supply chains, and managing overhead expenses effectively.
Over the past few years, the number of pizza outlets among the top three players has surged from 1,437 to 2,932 stores between FY17 and FY23 (excluding other players like Oven Story, Sbarro, Pizzeria, MojoPizza, Smokin’ Joe’s, etc.). Despite this growth, major pizza chains have faced challenges such as declining same-store sales growth and profitability. These setbacks are attributed not just to a slowdown in consumer demand but also to rapid store expansions and heightened competition within the sector, it stated.
In contrast, burgers have been part of India's culinary landscape for over two decades, available even in smaller towns. Recently, however, the market has witnessed the rise of both regional and national burger chains like Burger Singh, Burgrill, Hello Burger’s, alongside many cafes incorporating burgers into their menus, the brokerage pointed out.
Looking ahead, the number of outlets operated by major players such as McDonald’s, Burger King, Wendy’s (for home delivery), and Burger Singh, is expected to grow significantly, expanding from 789 outlets in FY20 to an anticipated 1,675 by FY26.
PL noted that the pizza category has been grappling with significant demand pressures and a slowdown in recent quarters, while the burger category maintained its resilience and outpaced pizza until the latter half of FY24.
Factors contributing to the pizza category's challenges include intense competition from smaller and regional players like Pizzeria, MojoPizza, and La Pinoz Pizza, offering competitive pricing. Moreover, leading players struggled to capitalise on the premiumisation trend observed in gourmet pizza brands. The rapid expansion of store counts by major chains over the past five years further intensified competition. Consumer behavior also shifted towards lower-priced segments below ₹100, driven by competitive strategies from major players seeking greater market share, it observed.
Meanwhile, the burger category sustained resilience until the second quarter of FY24, after which it faced softened demand due to heightened competition, geopolitical influences, and overall economic slowdown. Domestic chains like Burger Singh, Burgrill, and Hello Burger have emerged prominently, particularly in the northern region, with plans for further expansion into southern and western markets, it further added.
Moreover, the pizza segment saw higher discounts and special offers. The launch of “Flavour Fun” range by Pizza Hut has disturbed the balance at the bottom end of the market. The profits of both Jubilant FoodWorks and Pizza Hut took a big hit in FY24. Similarly, burger chains like Westlife Foodworld reported lower EBITDA margins in FY24 due to deteriorating SSSG. Burger King has not been impacted so far as it has a low base and has shown positive SSSG so far.
"The QSR industry is experiencing unprecedented competition from regional players, which initially began in the pizza category. Pizza companies suffered a significant decline in SSSG for four consecutive quarters. Subsequently, increasing competitive intensity began to affect the SSSG of burger companies, although not to the extent seen in the pizza category," it noted.
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